An FYI regarding 2016 Medicare premiums for our retirees out there. The article below explains why some 30% of Medicare participants will most likely be in for a big increase in monthly premiums next year (a whopping 52% at the highest potential). Those affected will include: 1) people new to Medicare, 2) high income participants and 3) those that do not have their Medicare premium automatically deducted from their Social Security benefits.
While the majority of Americans probably won’t see their monthly premium rise, the reason why is a downer: according to the Social Security Administration’s most recent projections, inflation has not been high enough for the year to trigger a cost of living adjustment (COLA) in 2016. Without a COLA, Medicare’s “hold-harmless” clause prevents increases in costs to anyone currently signed up to the program who does not fall into any of the 3 categories listed above. We’ll know for sure in October, when Social Security officially makes the announcement for cost of living adjustments, if this is yet another year where retirees don’t see an increase in their benefits.
By Jennie Phipps
Your Medicare costs will rise a lot or not at all in 2016.
Don't panic. For about 70% of Medicare participants, Part B will stay the same as it has been for the last couple of years: $104.90. That's because of the relationship between Social Security and Medicare. Inflation hasn't been high enough to trigger a Social Security cost of living adjustment, or COLA, for 2016, according to predictions last month by Social Security's trustees.
The rules contain a hold-harmless clause that prevents increases in Medicare costs that are greater than Social Security's COLA. So if the trustees' prediction last month holds true -- that there won't be any COLA in 2016 -- for most participants that means Medicare Part B costs will be flat.
But some 30% of Medicare participants can expect a significant increase in Part B costs -- as much as 52% in 2016 -- because Medicare is required by law to cover a certain amount of its costs. If the costs can't be shared among everybody because of the hold-harmless clause, then those people not covered under the hold-harmless clause will feel the pain.
Who pays more?
People new to Medicare: If you are signing up for Medicare for the first time in 2016, you aren't protected by the hold-harmless clause and your initial Part B premium will be $159.30 in 2016.
High-income participants: More than 1.3 million people already pay higher Part B premiums because their annual incomes are above $85,000 for an individual or $170,000 for a couple. The trustees projected that single individuals earning up to $107,000 (and couples earning up to $214,000) would see their 2016 monthly premiums increase from $146.90 per person this year to $223 in 2016. For individuals earning more than $214,000, or for couples earning $428,000, the projected increase is $509.80 per person, up from $335.70 in 2015.
People who have deferred claiming Social Security: This hits an estimated 1.6 million people. It includes people 65 or older who are still working, but have signed up for Medicare because their employer doesn't offer health insurance. It also hits people who have filed and suspended Social Security benefits to allow a spouse to claim. If they are paying $104.90 a month for Medicare Part B this year, they will be charged $159.30 a month in 2016.
"Once again, it seems like we are hitting the middle -- the newly eligible and folks who don't have their Part B deducted from their Social Security because they continue to work," says Joe Baker, president of the nonprofit Medicare Rights Center.
Baker says his organization has gotten lots of questions from people wondering whether it makes sense to claim Social Security right away and begin to have their Part B premiums deducted, but he generally doesn't advise that for a couple of reasons:
The 6% to 8% annual increase to age 70 in the monthly Social Security check available by waiting is worth a lot more in the long run than any savings in Part B premiums.
The increases aren't carved in stone. The final determination about whether or not there will be a 2016 COLA isn't made until late in the fall. A last minute recalculation or change in policy could reduce the projected increase. Plus, Baker says, "This could be a 1-year phenomenon."
In their annual report, released in July, Medicare Trustees predicted that there will be a COLA in 2017. If that happens, Medicare's costs can be shared more equitably.
Here's why there is no COLA expected in 2016.